The Race to $4 Trillion: Which Tech Giant Will Win?

Moomoo News Global joined discussion · Oct 28 19:58

$NVIDIA (NVDA.US)$ ended the week with its shares at $141, boosting its market value to $3.47 trillion, making it the world's second-largest company after $Apple (AAPL.US)$. $Microsoft (MSFT.US)$ follows with a market cap of $3.18 trillion as of last Friday. These tech giants are all poised for the next major milestone in market cap, and investors are likely seeing discussions about which companies could reach $4 trillion.

The Race to $4 Trillion: Which Tech Giant Will Win?

Apple's Advancements

Apple unveiled its AI features, dubbed Apple Intelligence, at its June Worldwide Developers Conference. However, those AI features weren't ready when the iPhone 16 launched in September. iPhone owners will get their first taste of Apple Intelligence at the end of October, and more features will be released over the next six months or so.

Apple Intelligence includes compelling promises that could make the iPhone a much more powerful device for productivity, communication, creativity, and general life management. But there's a big catch. It's only available on newer iPhones: the iPhone 15 Pro, iPhone 15 Pro Max, and the complete iPhone 16 lineup. As such, hundreds of millions of iPhone owners will have to upgrade their devices to access Apple Intelligence.

As Bloomberg reported on October 18th, Apple's iPhone 16 sales in China are up 20% in their first three weeks compared with 2023, a positive sign for a device that struggled this year to gain traction in the world’s largest smartphone market. According to Counterpoint Research data, the iPhone 16 debuted in September and has outperformed its predecessor so far. Consumers continue to shift to the pricier models, and sales of the top-end Pro and Pro Max models gained 44% compared with last year’s equivalents.

AI's potential could trigger a "super cycle" of record iPhone sales. Wedbush analyst Dan Ives predicts Apple could sell 240 million iPhones in fiscal 2025. He also anticipates a strong sales rebound in China due to the AI-driven supercycle.

"China sales for iPhone 16 will show a strong rebound over the next year with the beginning of this AI-driven supercycle,” he wrote in a note.

Currently, trading at 31.5 times the consensus estimate of 2025 earnings, Apple's stock is priced above the general market average. This premium is justified by its substantial free cash flow and aggressive share buyback strategy. Looking forward, a robust upgrade cycle coupled with advances in directly monetizing AI features could potentially drive Apple's market valuation to $4 trillion.

Nvidia's Dominance

Nvidia has emerged as the foremost beneficiary of the heightened interest in artificial intelligence (AI). The demand for its high-end GPUs is so robust that major tech companies are snapping them up as quickly as they are produced. This trend shows no signs of abating, with Nvidia's CEO Jensen Huang describing the demand for their forthcoming Blackwell chips as "insane."

This robust demand is reflected in the strong financial performance of Nvidia's manufacturing partner, Taiwan Semiconductor Manufacturing (TSM), which anticipates a 35% increase in year-over-year revenue for the fourth quarter. This growth is driven by the expanded use of advanced manufacturing processes, essential for producing Nvidia's sophisticated chips. Additionally, TSMC is planning to ramp up its capital expenditures in 2025, anticipating continued strong demand.

The forthcoming earnings reports from the "Magnificent Seven" tech giants — Meta, Amazon, Alphabet, and Microsoft — which collectively contribute over 40% to Nvidia’s revenue, are poised to offer further insights into Nvidia’s market dominance. These companies have committed to sustained AI investment, highlighting the strategic importance of Nvidia’s offerings.

Financial commitments from these tech behemoths were substantial in the last quarter, with $Meta Platforms (META.US)$, $Alphabet-A (GOOGL.US)$, and $Microsoft (MSFT.US)$ collectively spending over $40 billion, and Amazon projecting its second-half spending to exceed the $30 billion recorded in the first half. The third-quarter financials from these companies will be pivotal for assessing Nvidia's ongoing market impact and will critically influence its stock momentum in the near term.

Looking at the broader perspective, Dan Ives has likened Nvidia's current market position to that of LeBron James in high school — full of potential and primed for phenomenal growth. Ives also pointed out Nvidia’s unrivaled position in the market, dubbing it 'the only game in town.' He highlighted the significant multiplier effect Nvidia has within the tech sector, with Fortune reporting that every dollar spent on Nvidia’s chips generates an 8-10 times ripple effect across the industry, underscoring Nvidia's pivotal role in the tech ecosystem and its expansive influence on market dynamics.

Microsoft's AI Leadership

Microsoft's initial investment in OpenAI positioned it as a frontrunner in the artificial intelligence field. Due to its robust capabilities, developers keen on leveraging foundational models, including OpenAI's GPT, have been attracted to Microsoft’s cloud service, Azure.

Azure has long been a key growth driver for Microsoft, but its expansion has accelerated with the current surge in AI technology, despite the platform's already substantial scale. In the company's FY24 Q4, Azure’s revenue increased by 29% year-over-year, outpacing all other public cloud providers.

This growth trajectory is expected to continue. Microsoft’s management has projected that Azure's revenue growth will further accelerate in the latter half of the current fiscal year as recent capital investments begin to bear fruit. In 2024, Microsoft ramped up its capital expenditures to $44.5 billion, marking a 58% increase from the previous year.

Microsoft also enhances its leading enterprise software, including Office 365, by integrating AI capabilities. Its AI-driven Copilot software has seen rapid adoption, with user numbers across all platforms growing by 60% sequentially in the last quarter. There remains significant potential for further growth, as Microsoft reported over 400 million Office 365 seats at the end of last year, with the numbers continuing to rise at a high single-digit percentage rate each quarter.

Microsoft’s stock is currently trading at approximately 32 times the consensus earnings estimate for 2025. However, it could arguably command a higher multiple given its dual role in AI, spanning both infrastructure and software. The free cash flow generated from its enterprise software is reinvested into Azure and supports a robust share buyback program. Over time, as both Azure and Copilot scale, margins are expected to improve, which, when combined with solid revenue growth and ongoing share buybacks, could lead to significant growth in earnings.

Source: Bloomberg, the Fly, Motley Fool

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